Inverted Hammer

Inverted Hammer

Inverted Hammer is a reversal pattern, with long upper shadow and small real body, at the lower end of the range. Looks similar to Shooting Star pattern, which is top reversal pattern, while Inverted Hammer is a Bottom Reversal pattern. Generally, it s a bullish pattern after a downtrend.

Here, color of real body does not matter much, but preferably some significant downward action should have taken place, to call something for reversal. And it is always important to wait for next days price action, whether it confirms reversal or not.

Rationale behind Inverted Hammer to to call for Bullish Reversal pattern is – Inverted hammer forms when market opens on, or near its low, then rallies. The bulls fail to sustain the rally and price close at or near, the lows of the session. But if, next day market opens above the real body of the inverted hammer, it means those who shorted at the opening or closing of the inverted hammer day are loosing money. The longer the market holds above the inverted hammers real body the more likely these shorts will cover.